| LONDON, March 25
LONDON, March 25 Banks' participation in
compiling the Libor benchmark interest rate that was at the
centre of a fixing scandal last year will remain voluntary when
new rules come into force.
Britain's financial watchdog wants to restore credibility to
Libor, a benchmark used to price products from home loans to
credit cards worth $300 trillion globally, after some banks
admitted to rigging it.
Regulators across the world are watching to see how the
Financial Services Authority's (FSA) rules, due to come into
force next month, will work out.
The European Union is considering whether to force banks to
help compile Euribor, Europe's counterpart to the London
Interbank Offered Rate (Libor), to safeguard its integrity.
Banks including Dutch lender Rabobank, Switzerland's UBS
and U.S.-based Citigroup have said they no
longer wanted to participate in the Euribor-setting process.
Regulators worry that if too many banks drop out, the quotes
banks submit would become unrepresentative and the benchmark
rate could be easily manipulated.
Banks submit an estimate of the rate at which they think
they could borrow from another bank and these quotes are used to
compile the benchmark.
The FSA, which put the issue of compulsory participation to
banks last December, said on Monday it was still considering the
"These responses broadly agree with our approach that
participation in Libor should primarily be on a voluntary
basis," an FSA spokesman said.
"The successful reform of Libor requires the active
participation of all key stakeholders," he said.
The FSA said on Monday its new rules are based on proposals
made last September for spotting and avoiding manipulation of
British banks RBS and Barclays and Swiss
lender UBS have been fined a total of $2.6 billion for
their part in the rate-fixing scandal and more are set to be
"These new rules today should help restore that faith and
bring integrity back to Libor," FSA managing director Martin
Wheatley said in a statement.
The FSA said banks face paying up to 545,000 pounds
($831,000) a year to comply and a one-off cost of up to 2.5
million pounds for initial systems changes.
But it eased the costs by dropping a proposed requirement
for banks to hire an outside auditor each year to check on their
controls for submitting quotes. Instead banks must appoint an
auditor "on a regular basis".
Banks must still say why a less frequent check would be
The FSA will check within the next 12 months to see if
lenders are complying.
Some regulators like the U.S. Commodity Futures Trading
Commission want a move to alternative benchmarks based on market
transactions rather than quotes from banks. Wheatley believes
there is no practical alternative in the short term.
Thomson Reuters, parent company of Reuters, has
been calculating and distributing Libor rates for Libor's
sponsor, the British Bankers' Association, since 2005.
The BBA is being stripped of its sponsor role and a new role
of an administrator for Libor will be created. The
administrator, which has yet to be appointed, will ensure banks
follow the rules.